IOOF Holdings Limited

IFL’s share surged ~7% post FUMA announcement: IOOF Holdings Limited (ASX: IFL) has an engagement in the financial advice, platform management & administration, investment management, and trustee services including estate planning and corporate trust. The company recently highlighted that its Funds under Management, Advice and Administration (FUMA) was reported at $149.5 billion as at June 30, 2019, an increase of 18.7% as compared to the previous year.This represented an increase of 5.9%, excluding ANZ Wealth aligned dealer group funds under advice acquired during the year. During the June ’19 Quarter, IFL reported net inflow of $561 million under portfolio & estate administration, net inflow of $432 million under financial advice and net outflow of $181 million under investment management. Investment management flows can be attributed to the gains from new advice relationships partially offset by redemptions associated with pension payments. Another highlight was the continued strong positive market reaction to the recently launched IOOF Insignia Wrap range (BT badge). The range of funds continued to attract strong inflows, reaching over $5.6 billion in funds under advice in the eight months since launch.


Funds movement in June ’19 Quarter (Source: Company Reports)

Outlook:This year has seen a period of intense scrutiny on the financial services industry. Any changes legislated by the government as a result of the Royal Commission will be beneficial to confidence and trust in Australia’s financial services sector. IFL is committed to its ClientFirst approach and aims at diligently pursuing its strategy to deliver positive long-term outcomes for its advisors, clients and shareholders.

Stock Recommendation:IOOF Holdings’ share generated positive YTD return of 7.95%. Its net margin for H1FY19 stood at 13.8% from 9.8% in H1FY18, which implies the company improved its bottom-line performance as compared to the previous corresponding period. Its ROE for H1FY19 stood at 4.2%, better than the industry median of 2.5%, which implies the company generated a better return for its shareholders than its peer group. Its debt to equity for H1FY19 stood at 0.23x, lower than the industry median of 0.44x, which implies the company is less leveraged than its peer group. On the valuation front, EV/Sales and Price/Book Value multiple on Trailing Twelve Month (TTM) basis stand at 3.0x and 1.0x, lower than the industry median of 4.5x and 1.3x, respectively. Its dividend yield stood at 9.56%, which is better than the industry median of 5.2%, generating more income for the shareholders. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $5.870, up 6.922% as on July 25, 2019.
 

Scentre Group

Decent Fundamentals: Scentre Group (ASX: SCG) owns and operates the pre-eminent portfolio of living centres in Australia and New Zealand. Recently, the company updated on change in the interest of a substantial shareholder where thevoting power of BNP Paribas Nominees Pty Limited increased from 7.58% to 8.59%, effective from June 21, 2019.

The company recently sold out Sydney CBD office towers to certain funds managed by Blackstone for a consideration of $1.52 billion. As a result of this transactions, the Group disclosed its intention to commence an $800 million buy-back program of SCG securities. This will allow the company to increase its ROE while maintaining its strong balance sheet position. The proceeds from the transaction will initially be used to repay debt. The transaction is expected to be dilutive to Funds From Operations (FFO) in 2019 by around 0.4 cps. And, this dilution will not take into account the redeployment of capital, including the $800 million security buy-back program.

Q1FY19 key Highlights: During the quarter ended on March 31, 2019, the company completed 448 lease deals with a lease deals completed area of 71,084 sqm. The number of customer visits also continued to increase with more than 535 million visits per annum. Over a period of one year to March 31, 2019, the company reported a rise of 1.7% in total speciality in-store sales. Total portfolio sales went up by 1.3% at $24.1 billion (moving annual turnover). The company continued to enhance its platform through Westfield Newmarket redevelopment in Auckland, which is expected to open in stages during the second half of the year.


Development Activities Data (Source: Company Reports)

Outlook: The Group reconfirms forecast FFO (funds for operation) growth of ~3% for the 12 months ending December 31, 2019. The distribution for 2019 is expected to increase by 2% to 22.60 cents per security. The security buy-back program will start post 1HFY19 announcement, which is expected to be on 22 August 2019.

Stock Recommendation: Scentre Group’s share generated a positive YTD return of 1.82%. Its gross margin, EBITDA margin and net margin for FY18 stand at 68.5%, 65.2% and 87.1%, which are close to the industry median of 72.0%, 65.2% and 91.3%, respectively, which indicates decent fundamentals for the company. Its ROE for FY18 stands at 9.9%, which is close to the industry median of 10.8%, implying decent return for the shareholders. On the valuation front, its EV/Sales and Price/Book Value multiple on TTM stand at 13.9x and 0.9x, which are lower than the industry median of 16.4x and 1.2x, respectively, indicating an undervalued position at the current juncture. Its dividend yield stands at 5.67%, which is better than the industry median of 5.2%, generating more income for the shareholders. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $3.980, up 1.79% as on July 25, 2019.

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